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Carnaby Street derives its name from Karnaby House which was built in 1683 to the east. It is not known why the house was so named. The street was probably laid out in 1685 or 1686. First appearing in the ratebooks in 1687, it was almost completely built up by 1690 with small houses. A market was developed in the 1820s. In his novel, Sybil (1845), Benjamin Disraeli refers to "a carcase-butcher famous in Carnaby-market".[1]

This area is notable for a choleraoutbreak in 1854 leading to an early application of fundamental epidemiological principles to resolve the crisis. John Snow, the physician who recognised the cases were concentrated near a pump on Broad Street communicated the finding on a map-based graphic. It led to the pump being locked and the reduction in cases of cholera was rapid.

The Carnaby Street contingent of Swinging London stormed into North American and international awareness with the 15 April 1966 publication of Time magazine's cover[6] and article that extolled this street's role:

“

Perhaps nothing illustrates the new swinging London better than narrow, three-block-long Carnaby Street, which is crammed with a cluster of the 'gear' boutiques where the girls and boys buy each other clothing...[7]

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In October 1973, the Greater London Council pedestrianised the street. Vehicular access is restricted between 11 am and 8 pm. A comparison of before and after number of pedestrians entering the area indicated a 30% increase in pedestrian flows as a result of the pedestrianisation. A campaign commenced early in 2010 to call for pedestrianisation in the adjacent area of Soho.[8]

In 1966, Harry Fox and Henry Moss opened Lady Jane, the first ladies' fashion boutique in the street. They parted company and Harry Fox opened Lady Jane Again, Lady Jane's Birdcage, a souvenir shop and a men's wear shop, Sir Harry.

Carnaby Street was satirised by The Kinks in their 1966 hit, "Dedicated Follower of Fashion", which contains the line "Everywhere the Carnabetian Army marches on, each one a dedicated follower of fashion".

It was mentioned in the 1967 film Smashing Time. One of the songs, "Carnaby Street", features the lyric: "You'll pay for the gear on display to appear on the scene/ It's no good being mean/ They'll have your every bean".

In 1969, Peggy March recorded an album called In der Carnaby Street, with a hit song of the same name.